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Saturday, March 26, 2011

Shakespeare and the debt crisis

PARIS
In Shakespeare's most famous play, Hamlet, one of the characters, Laertes, is about to embark for Paris and receives from his father some wise advice:

Neither a borrower nor a lender be,
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

Hamlet, Act I, Sc. 3, 75-77.

Had our rulers heeded this sound advice proffered by the Bard half a millennium ago we would have been spared the disastrous budget crisis which many countries are suffering from. So many pixels have bounced on our screens on this topic that I feel I must bring my own contribution to the debate.

There's something wrong when people's livelihood is directly decided upon by the financial markets' diktats: cut people's wages and pensions so that you can repay us, bankers and bondholders tell our governments who fall over themselves to accommodate their (and our) true masters. Aren't these modern-day Shylocks (another Shakespearean reference) fat enough? or are they so greedy that they won't stop until they have sucked us dry?

If the weight of debt has become so intolerable that governments can't pay their loans back, well, then don't. I can hear some of my detractors shriek that debts are sacred and should be honored. This is disingenuous and pure hogwash (if hogwash can ever be considered as pure.) Every day companies and people go bankrupt and their creditors don't get paid, why should government be different? After all, the interest rates charged by bondholders reflect the risk they may not be paid: a country deemed solvent (such as Germany) can borrow at a low interest rate, a very risky one such as the PIGS (Portugal, Ireland, Greece and Spain) have to pay much higher rates because they are deemed a riskier investment. So, investors have already been largely repaid by the bigger amounts they extract from governments. Isn't that enough? If I decide to invest in a bakery and customers don't show up, I lose my investment, right? Will anybody come and rescue me? Certainly not the government. That's the purest expression of the market, and I have no problem with that. Why then should bankers and bondholders, who are much wealthier than I, be spared this basic tenet of capitalism? They made a bad investment and should suffer the consequences remembering Shakespeare's words: "loan oft loses itself."

Of course, the consequence for governments is that after they default they will be unable to borrow money in the future. Well, that doesn't strike me as a bad thing at all. After all, wasn't the crisis precipitated by borrowing in the first place? I would argue that we should remove the cause of the problem, and the problem will be solved. As any household knows it's never a good idea to borrow, at least for a long period of time. Sure, when you face an emergency (an unexpected health bill, or a house renovation or student fees for your children) I can understand that you should borrow on an exceptional basis and pay back as soon as you can. But keep on borrowing and pay your debt through even more borrowing and we all know how it will end: in tears. "Never a borrower be," said the man from Stratford.

Now, in my first paragraphs I've been very critical of the financial markets, especially bankers and bondholders, and their responsibility in the current crisis. But intellectual honesty dictates that a big mitigating factor be acknowledged: they have not forced governments to borrow. Criticizing bankers for being leeches and greedy is like badmouthing Dracula for hanging around the blood bank. What else do you expect? But the point is that they haven't held a gun to government's head in order to force them to borrow. Governments have willingly thrown themselves into this vicious cycle which, like its private-consumer variety, is now ending in tears.

Why do governments borrow? If for exceptional reasons, such as a war, a natural disaster, or economic crisis such as a recession, that would be fine. But look at France, a country that has been blessed with no natural disaster in living memory, nor a war for 60 years, and just a few mild recessions. Why then has the French government been unable to balance the books for over 30 years? Yes, you've read right: the French government has been spending more than it's earned since the 1970's, and tears time has come: wage freezes, longer retirement date, cuts in valuable public services such as education, health (I still cannot understand why we are spending €60 billion in defense with no threat from any of our neighbors.) Look around you and most other governments in Europe are in a similar situation (at least, Germany had to pay for the huge one-off cost of Reunification; what has the French government to show for its big debt?)

They say that one should not waste a good crisis. Let's hope that our rulers finally heed the great Will's words that "borrowing dulls the edge of husbandry" and enforce a very simple and common-sense principle: if you cannot have the means of your ambitions, then have the ambitions of your means. If this precept is good for my family, it should be good for the government.

3 comments:

"But intellectual honesty dictates that a big mitigating factor be acknowledged: they have not forced governments to borrow." It is more complex than that. The corporate banks are linked to the corporate enterprises and media. They indoctrinate, all concerted together, people and public authorities to spend always more, specially by credit. Anyway excellent article.

If the FED decides that QE3 is called for, or acts to increase monetary supply by other means, they drive up the deficit and incur more public debt. And yet the FED are a private banking cartel. Very contemplated indeed.

About the blogger

A global business and HR technology expert, I live in Paris,France where I was born, after stints in North Africa, the US (where I went to college), Spain (where I worked for the UN) and Brazil (my second home during my freelance years.) A strong believer in the dual role of HR and cloud technology to enhance corporate performance, these convictions are voiced in journal articles, at conferences and in blog posts. My hobbies include swimming, movies and literature. I am also the proud author of "High-Tech Planet", a rare business novel set in the IT industry (available from Amazon: http://amzn.to/czf0qw.) A relentless multilingual globe-trotter, you can see a sample of my detailed captioned pictures at http://bit.ly/dBcJkw. To quote Charlemagne: "to have a second language is to have a second soul." I also NEVER TAKE THINGS AT THEIR FACE VALUE. Challenge the received wisdom and go beyond first impressions: you'll be amply rewarded - that's my philosophy.
I can be reached at: contact@AhmedLimam.com.
NOTE: The thoughts expressed in this blog reflect my own, personal views not those of any of my employers, current or past.